First half year results for the business year 2003/04

BERU increases sales by 10% in the first half year

Ludwigsburg, November 13, 2003 ¬ó In the first six months of the business year (1st April ¬ó 30th September 2003), BERU Aktiengesellschaft, Ludwigsburg, increased its consolidated sales by 9.6% from EUR 140.3 million to EUR 153.8 million. The company recorded EBIT (before one-offs) of EUR 24.4 million in the first six months, compared with EUR 20.4 million for the same period of the previous year. The newest division ¬ó Electronics and Sensor Technology posted the highest growth. In this division, BERU recorded a 22.9% increase to EUR 35.9 million compared with EUR 29.2 million in the previous year. The company expanded its sales of electronic tyre pressure monitoring systems (TSS) by 77.5% totalling EUR 14.2 (8.0) million. DVFA/SG earnings per share adjusted for one-offs at EUR 1.58 (EUR 1.41) were 12.1% higher than in the first six months of 2002/03.

Eyquem acquisition integrated

Eyquem, the spark plug division that used to belong to Johnson Controls Automotive Electronics and was taken over as of 31st July 2003, was included in the group of consolidated companies for the first time. The thoroughly positive response from customers to the involvement of BERU, which intends to substantially increase production over the next few years, was pleasing. Production in Chazelles, France, is currently being redesigned for the planned higher volumes, and new product technologies are about to be implemented. BERU Eyquem is ranked number One for spark plugs in France, whereby almost 90% of sales are generated in the spare parts business. Integration with the Group´s structure is continuing as planned. BERU is currently involved in raising synergies in purchasing and improving the distribution system, e.g. by merging the existing distribution structures in France. As a result of the August holidays, which are common across the industry in France, the company contributed just EUR 3.7 million to the Group´s sales in the second quarter. Sales for the whole financial year are expected to be EUR 20 million.

Growth in core business unit Diesel cold-start Technology

BERU achieved a 2.5% growth sales to EUR 69.8 (68.1) million in its core business unit Diesel cold-start Technology. The company succeeded in expanding its sales in the OEM field by approximately 5%. This basically matches global growth for the diesel engine production market. In addition there was further growth in the original equipment services (OES) in France, which was 23% above forecast. Outside Europe the spare parts business in the US fell below expectations. This was mainly due to two factors: on the one hand the OES business was below expectations and on the other hand the weak dollar affected sales adversely. Ramp-ups in diesel cold-start technology products are having a positive effect on the company. The starting deliveries of the new diesel instant-start system for the Volkswagen Golf V are increasingly boosting sales. The supply of DMAX Isuzu and GM diesel engines, which will start towards the end of 2003, strengthens this trend and will continue to support sales in the core business field Diesel cold-start Technology, as will the ramp-up of the instant-start system at Daimler Chrysler for Mercedes-Benz in early 2004.

Acquisition and new products have a positive effect on Ignition Technology

BERU was able to increase sales in Ignition Technology from EUR 43.0 million to EUR 48.1 million. This increase was partly due to the acquisition of the Eyquem spark plug division in France from Johnson Controls Automotive Electronics on 31st July 2003. The purchase is one reason for the increased spark plug sales that BERU increased by more than 50%. Sales revenues of ignition coils were approximately 5% lower, reflecting the lower number of petrol driven cars produced. New registrations of passenger cars with petrol engines in Western Europe fell by nearly 7% in the first seven months of 2003. However BERU was able to increase its sales substantially in September with the start of serial production of ignition coils for the French manufacturer Renault.

Electronics and Sensor Technology produces the strongest sales growth

Developments in the Group´s newest division ¬ó Electronics and Sensor Technology ¬ó were pleasing. The highest sales growth was achieved in this division, where sales revenues increased by 22.9% from EUR 29.2 million to EUR 35.9 million. In the first six months of the business year, the soaring sales of tyre pressure monitoring systems made a substantial contribution, in addition to planned increases in the new PTC interior heating systems for diesel vehicles.

Higher take rates of the tyre pressure monitoring systems in the upper mid-class and premium class have continued to rise. Increasing deliveries to VW and Porsche for the new Touareg and Cayenne models also had a positive impact on sales trend. As a result, the tyre pressure monitoring systems division recorded 77.5% growth in the first six months to EUR 14.2 million, compared with EUR 8.0 million in the previous year.

Increase in orders received and orders on hand

Incoming orders in the first six months of the year increased by 10.3% from EUR 148.1 million to EUR 163.3 million. The orders on hand also saw double-digit increases and rose by 10.4% to EUR 155.6 (141.0). million.

Personnel expenses as a percentage of sales improves

The number of employees in the Group was up compared with the end of the first quarter, mainly as a result of including BERU Eyquem in the group of consolidated companies. As of 30th September 2003, the Group employed 2,718 (2,185) employees. In spite of higher salary agreements and the increased number of employees, personnel expenses as a percentage of sales came in lower at 31.9% (33.5%).

Material cost as a percentage of sales rises due to higher electronics content

As planned material expenses as a percentage of sales were up due to the changed product mix. Increased sales of the new products PTC heater and TSS tyre pressure monitoring system, but also as a result of increasing shipments of ISS control units, had material expenses as a percentage of sales rise disproportionally to 36.0% (33.9%). Material cost increased by 16.6% to EUR 55.4 (47.5) million. The gross yield margin therefore declined slightly in the first half of the business year to 64.0% (66.1%). However, in the second quarter it was possible to slightly improve the gross yield margin against the first quarter. Other operating expenses in the first six months of the business year totalled EUR 24.2 (22.8) million.

EBIT margin reaches 16%

In spite of the change to the group of consolidated companies with the inclusion of BERU Eyquem, which is less profitable than the Group average, the Group recorded an EBIT margin of 15.9% (14.5%). EBIT came in at EUR 24.4 million in the first half of the year compared with EUR 20.4 million in the same period of the previous year. The company achieved a noticeable improvement in the quality of the earnings. Progress in the restructuring of the two subsidiaries ¬ó REMIX Group Electronics, Hungary and BERU F1 Systems, UK ¬ó had positive effects, as did the Group-wide efficiency improvement programme PAP (Productivity Action Plan). Restructuring expenses and operating losses at the subsidiaries totalled EUR 0.5 million. The inclusion of BERU Eyquem, whose profit margin is lower than the Group´s average, had a slight negative effect on the EBIT margin.

The operating result, which also includes one-off capital gain from the sale of shares in other companies, increased to EUR 24.9 (24.2) million. In the previous year, BERU had achieved tax-free capital gain totalling EUR 3.8 million from the sale of investments in other companies. In the first six months of this business year the company had capital gain of just EUR 0.5 million from the sale of shares in the US companies Impco Technologies, Inc. and Stoneridge, Inc.

Earnings per share increase 12%

The weak interest rate environment had the investment earnings and financial result decrease from EUR 1.7 million to EUR 1.3 million. Even so at EUR 26.2 (25.9) million the company still earned 1.2% more before taxes. Due to higher taxation at 36.6% (30.9%), net incom was down 7.3% from EUR 17.9 million to EUR 16.6 million. The increased tax rate relates both to the higher sales with German manufacturers and to the fact that the Federal Government has removed the possibility to deduct one seventh of the total distributed dividends from the tax bill. Earnings per share adjusted for one-offs (according to DVFA/SG) increased by 12.1% to EUR 1.58 (1.41).

Capex and investments in future product development remain at a high level

The company´s financial strength shows in a strong cash flow generation, which increased to EUR 28.2 (28.0) million. Cash and marketable securities fell from EUR 128.1 million as at 30 June 2003 to EUR 86.9 million. This level was influenced by the payment of the purchase price for BERU Eyquem and by the payment of the total dividends. The Group is continuing its sustained investment in the company´s future, both in ramping-up new products and in expanding the spare parts business. Capital expenditure increased to EUR 16.3 (11.8) million. This includes another part of the investment for the newly constructed after-market logistics centre of approximately EUR 5 million. Capex also focussed on the producing of PTC heaters and expanding the production capacities on glow plugs and heating control units for the ISS.

In spite of an almost complete lack of capital gain from the sale of shares in other companies in the first quarters of the current business year and the disproportionately high level of capital expenditure, free cash flow from operating activities in the second quarter totalled EUR 5.3 (3.6) million.

Outlook

Chairman of BERU´s management board Marco v. Maltzan is confident that the company is on the right track: »Unchanged our target for the full year continues to be a 15% increase in sales and to record a minimum 15% EBIT margin. Although the increasing share of electronics results in material expenses as a percentage of sales going up, achieving the break-even threshold for the new PTC and ISS products as quickly as possible should, on the other hand, have a positive impact on earnings trends. The price pressure felt in the marketplace will also be countered by the current efficiency improvement programme PAP (Productivity Action Plan). The increasing share of diesel, higher take-rates for tyre pressure monitoring and the seasonally heavier spare parts business in the second half of the year lead us to expect that there will be sustained growth even in a stagnating market.«

Consolidated profit and loss account
First half-year 2003/04 (April 1, ¬ó September 30, 2003)

	2003/2004 in EUR mn	2002/2003 in EUR mn	Change in %
Sales	153.8	140.3	9.6
Change in inventory of finished products and work in process	7.5	3.2	134.4
Other own work capitalized	0.1	0.3	-66.7
Other operating income	3.5	7.7	-54.5
Material costs	-55.4	-47.5	16.6
Personnel expenses	-49.1	-47.0	4.5
Depreciation of intangible assets, plant and equipment	-11.3	-10.0	13.0
Other operating expenses	-24.2	-22.8	6.1
Profit before investment and financial result and taxes	24.9	24.2	2.9
Investment earnings and financial result	1.3	1.7	-23.5
Income from ordinary activities	26.2	25.9	1.2
Taxes on income and earnings	-9.6	-8.0	20.0
Consolidated net income	16.6	17.9	-7.3
Shares in profits/losses by other shareholders	-0.1	0.0	100.0
Consolidated earnings	16.5	17.9	-7.8
DVFA earnings per share (in EUR)	1.58	1.41	12.1

Consolidated Balance Sheet
as at 30 September 2003

Assets	30.09.2003 EUR mn	31.03.2003 EUR mn
Fixed assets
Intangible assets	21.9	13.2
Property, plant and equipment	98.5	83.0
Financial assets	5.3	4.5
	125.7	100.7
Current assets
Inventories	69.4	43.7
Accounts receivable and other assets
Trading accounts receivable	65.8	58.9
Accounts receivable from affiliated companies	4.1	3.5
Other assets	5.3	3.4
	75.2	65.8
Marketable securities	64.8	65.5
Liquid assets	22.1	52.2
	231.5	227.2
Deferred charges and prepaid expenses	0.8	1.1
Balance sheet total	358.0	329.0
Equity and liabilities	30.09.2003 EUR mn	31.03.2003 EUR mn
Shareholders´ equity
Subscribed capital	26.0	26.0
Capital surplus	73.1	73.1
Earnings reserves	131.6	121.3
Retained earnings	16.2	21.0
Other shareholders´ equity	1.3	1.2
	248.2	242.6
Special items from investment subsidies	1.8	2.1
Provisions
Provisions for pensions and similar obligations	13.4	12.2
Other provisions	29.7	29.3
	43.1	41.5
Liabilities
Liabilities due to banks	28.7	20.1
Trade accounts payable	20.3	14.1
Notes	3.9	1.4
Accounts due to affiliated companies	1.0	0.7
Other liabilities	11.0	6.5
	64.9	42.8
Deferred expenses and accruals	0.0	0.0
Balance sheet total	358.0	329.0

Cash flow statement of the Group
First half-year 2003/04 (April 1, ¬ó September 30, 2003)

	2003/2004 EUR mn	2002/2003 EUR mn
Net income (including shares in results by minority shareholders)	16.6	17.9
Depreciation on intangible fixed assets and tangible assets	11.3	10.0
Increase (previous year decrease) in accruals	0.2	-0.4
Other income/expenses not affecting cash flow	-0.1	-0.1
Profits from the disposal of intangible fixed assets and tangible assets	-0.1	-0.1
Profits from the disposal of securities in current assets	-0.8	-3.8
Increase (previous year decrease) in inventories, trade receivables as well as other assets not allocated to investment or financing activities	-26.8	0.7
Increase in liabilities arising from trade receivables as well as other liabilities not allocated to investment financing activities	8.7	2.6
Cash flow from current operating activities	9.0	26.8
Deposits arising from the disposal of fixed assets	0.1	1.0
Payments for investments in fixed assets	-15.6	-11.2
Deposits arising from the disposal of intangibel assets	0.0	0.0
Payments for investments in intangible assets	0.0	-0.3
Deposits arising from the disposal of financial assets	0.1	0.0
Payments for investments in financial assets	-0.7	-0.3
Payments for acquisitions of consolidated companies	-27.7	-0.5
Deposits arising from financial assets as part of temporary financial management	0.8	10.8
Payments arising from financial assets as part of temporary financial management	0.0	0.0
Cash flow from investment activities	-43.0	-0.5
Payments for dividends	-11.0	-11.0
Deposits arising from taking-up finance credit	10.0	3.9
Payments arising from finance credit amortization payments	-1.6	-2.0
Cash flow arising from financing activities	-2.6	-9.1
Changes in funds affecting cash flow	-36.6	17.2
Changes in funds not affecting cash flow	0.1	-1.4
Changes in funds resulting from consolidated companies	0.0	0.0
Total funds at the beginning of the period	111.8	93.4
Total funds at the end of the period	75.3	109.2

Group cash flow
First half-year 2003/04 (April 1, ¬ó September 30, 2003)

	2003/2004 EUR mn	2002/2003 EUR mn
Net income	16.6	17.9
Depreciation	11.3	10.0
Change in long-term accruals	0.3	0.1
	28.2	28.0

Group sales by division (distribution channels)
First half-year 2003/04 (April 1, ¬ó September 30, 2003)

	2003/2004 EUR mn	2002/2003 EUR mn
OEM	100.0	92.6
Aftermarket	42.9	37.0
General industry	10.9	10.7
	153.8	140.3